Startup 101 – Make Something Worth Investing In And Be Honest About It

honest

One of the most common mistakes founders make when starting a new project is creating the wrong product.  Or said a different way, they spend all their time creating something they think is valuable only to get to the end of the road and find out no one else thinks it’s valuable.

This is your classic Founderitis:  you are the only one who thinks your idea is good or valuable enough to purchase/buy/invest in.

Of course, this is where customer discovery and development come into play.  As a founder, before your team lays down one line of code you need to research the market, observe what they are doing, learn their problems and determine what you can build to solve those problems.  Then you need to test the hell out of the idea and the prototype.  Doing this will save you and your team a lot of frustration and grief down the line.

But what about convincing investors to actually give you money in support of your venture?  Is it as easy as walking in and sharing your world changing vision?  How about explaining in excruciating detail how your unique  technology is the latest, greatest and smartest in the market?

Not exactly.  The single best way to raise money is to tell the truth.

Paul Graham just wrote a great essay on this subject.  In it he states investors really only care about a few things:

Formidable Founders.  “The most important ingredient is formidable founders. Most investors decide in the first few minutes whether you seem like a winner or a loser, and once their opinion is set it’s hard to change.”

Tell the Truth “The way to seem most formidable as an inexperienced founder is to stick to the truth.  Investors will know if you are lying or pulling something over on them.  That’s the quickest way to turn them off.”

A Big Market “To prove you’re worth investing in, you don’t have to prove you’re going to succeed, just that you’re a sufficiently good bet. What makes a startup a sufficiently good bet? In addition to formidable founders, you need a plausible path to owning a big piece of a big market.”

So here’s the recipe for impressing investors when you’re not already good at seeming formidable:

  1. Make something worth investing in.
  2. Understand why it’s worth investing in.
  3. Explain that clearly to investors.

If you’re saying something you know is true, you’ll seem confident when you’re saying it. Conversely, never let pitching draw you into bullshitting. As long as you stay on the territory of truth, you’re strong. Make the truth good, then just tell it.

There you go.  It’s not easy to raise money but you should be simple, straightforward and honest.

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